Form 8582, Passive Activity Loss Limitations is used to calculate the amount of any passive activity loss that a taxpayer can take in a given year. (Limiting passive activity losses began with the Tax Reform Act of 1986 as a means of discouraging economic activity undertaken strictly as a tax shelter.)
Generally, passive activity losses are limited for income tax purposes because passive activity losses can only be offset by passive activity income. However exceptions apply for certain rental real estate activities and additional limitations apply to publicly traded partnerships (PTP). If a taxpayer’s passive losses are limited in the current year, the losses can be carried forward until the passive loss is used or until the activity that generated the passive loss is sold or otherwise disposed. Keystone Tax Solutions Pro will automatically carry forward any unused passive loss until used.
There are two kinds of passive activities.
- Trade or business activities in which the taxpayer did not materially participate during the year.
- Rental activities, even if the taxpayer materially participate in them, unless the taxpayer is a real estate professional. If the taxpayer did materially participate in the rental activity they are permitted to use a limited amount of any passive losses based on the taxpayer’s modified adjusted gross income. No passive loss will be allowed (unless the taxpayer is a real estate professional) if the taxpayer’s modified adjusted gross income is $150,000 or more ($75,000 or more if married filing separately).
Form 8582 is automatically generated by Keystone Tax Solutions Pro based on information provided elsewhere in the return. Certain adjustments to modify adjusted gross income (for Form 8582 purposes) and/or adjust calculated entries pulled from Schedule D, Form 4797, or Form 6252 are permitted. However, if Form 8582 is included in a return it cannot be removed, and a passive loss that has been limited cannot be taken. Moreover, regardless of the number or complexity of passive activities the taxpayer has, only one Form 8582 is filed.
To review the calculation of any passive activity loss limitation, from the Main Menu of the tax return (Form 1040) select
- View Results
- Form 8582.
To edit the Passive Activity Loss Limitations on Form 8582, from the Main Menu of the tax return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E,K-1,4835,8582)
- Form 8582 (Passive Activity Loss Limitations)
Gain Reported on 4797 from a Rental Disposition – Enter here the gain from the sale of rental real estate activity reported on Form 4797 in which the taxpayer actively participated. The entry will be included in Form 8582 Worksheet 1.
Passive Limitation Calculation for Sch D Transactions
Passive Limitation Calculation for Form 4797 Trans
Passive Limitation Calculation for Form 6252 Trans – Enter on these lines any amounts as needed.
Note: This is a guide on entering Form 8582 into the Keystone Tax Solutions Pro program. This is not intended as tax advice.
Additional Information:
Instructions for Form 8582, Passive Activity Loss Limitations